We've reported frequently on the encouraging data on home prices. The most recent encouraging data comes courtesy of Zillow, which shows that home prices inched 0.1 percent higher in August, with the average home price moving to $172,600. Zillow's data also show that the national foreclosure rate dropped to 9.2 homes out of every 10,000 homes, down from 10.9 homes out of every 10,000 in 2010.
Unfortunately, the good vibes on pricing and foreclosures were tempered by a warning that foreclosures will accelerate once the controversial robo-signing imbroglio passes. In fact, Zillow believes foreclosure inventory will pressure home prices and that prices won't bottom until 2012 “at the earliest.”
It's possible we could see national average and median home prices fall. Locally, prices could just as easily fall, stagnate, or rise. In fact, a rise might be more in the offing for many local markets. After all, national data is skewed by a few regions – Nevada , Arizona , Central Florida and Central California . Overall, we still see prices firming and rising in many markets, though that trend might not be reflected in national numbers.
As for mortgage rates, we can say categorically that they have been rising nationally and locally since last Friday, thanks in part to an employment report that showed the economy created more jobs in September than most economists had expected. In many markets, rates were up 20 basis points on the 30-year fixed-rate loan. This shouldn't come as a surprise; the yield on the 10-year US Treasury note – the foundation for long-term mortgages – has risen 35 basis-points over the past 10 days.
To be sure, mortgage rates could reverse course and return to the long-term down trend, but there is a real danger to a strategy predicated on returning to the long-term trend in a market that has been trending higher; that is the obvious: the short-term trend might not reverse.
Another danger is supply and demand. Falling mortgage rates do stimulate demand, but if supply isn't rising at an accommodating pace, there is no guarantee that an ultra-low mortgage rate will be filled. Loans, like all good and services, are rationed by price. If you can get a higher price for your product, you get it.
In short, if someone is satisfied with his rate, the best strategy is to ignore the daily vicissitudes and lock. Regret is a tough emotion to overcome, particularly in a market that is showing signs of wanting to move higher.
Release Date and Time
Mon., Oct. 17,9:15 am, et
Important. The rising production trend is encouraging for the economic outlook.
Producer Price Index(September)
Tues., Oct. 18,8:30 am, et
All Goods: 0.4% (Increase)Core: 0.1% (Increase)
Important. Producer prices remain subdued and non-inflationary.
Home Builders Index(October)
Tues., Oct. 18,10:00 am, et
Important. Activity remains at multi-decade lows, though some markets are showing increased activity.
Wed., Oct.19,7:00 am, et
Important. The uptick in purchase applications could signal improved October home sales.
Consumer Price Index(September)
Wed., Oct.19,8:30 am, et
All Goods: 0.3% (Increase)Core: 0.1% (Increase)
Important. Consumer prices are pushing the Federal Reserve's upper-range target and could turn inflationary.
Wed., Oct.19,8:30 am, et
Important. Starts remain at a three-year depressed level.
Existing Home Sales(September)
Thurs., Oct. 20,10:00 am, et
4.9 Million (Annualized)
Important. After surging in August, sales are expected to pull back to the longer-term trend.
Mortgage Market Debate
It's no secret that a lot of mortgage lending is in government-backed loans. Nationally, Fannie Mae, Freddie Mac, and the FHA back nine in 10 new mortgages. The federal government is looking to pull back and see if more private investors and lenders can be lured into the market.
There are legitimate concerns with a prospective federal pull back. There is the possibility of reduced available credit, thus leading to fewer sales and lower home prices. We've already seen some reduction in volume in higher priced homes when limits on loans backed by Fannie and Freddie declined at the beginning of October.
There is also the concern that sellers will find that fewer potential buyers qualify to purchase their properties. Less liberal down payments and lower loan limits could also hamstring trade-up buyers who want to tap their home equity as a down payment for their new residence.
Here's the conundrum: If we went to return to a more market-driven lending environment, we have to attract private investment, which means rates would have to rise. Private lenders and investors require a greater return than public sources of funds. It's worth noting, though, that many private lenders are flush with money they could put to work. What's more, private lenders and investors will add diversity to the market, which it is currently lacking.
The point is, we can see the mortgage market changing. We can't say whether it will be a net positive in the short term, but we think it raises the uncertainly level enough for borrowers to seriously consider taking advantage of the mortgage market as it is today.
This Mortgage Matters Compliments of Patti Wilson,
Senior Loan Officer Mutual of Omaha Bank.
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